* Q4 adj EPS $0.34 vs Wall Street loss view $0.06
* Rev up 66 pct to $355.5 mln, helped by Applebee's deal
* Plans to sell 200 Applebee's to franchisees in 2009
* Some excess cash to go to opportunistic debt retirement
* Shares up 16 percent, amplified by short covering
(Adds analyst comment, byline; updates share movement)
By Lisa Baertlein
LOS ANGELES, Feb 25 DineEquity Inc (DIN.N), the
parent of the IHOP and Applebee's restaurant chains, contained
costs and posted a surprise profit on Wednesday that sent its
shares sharply higher.
IHOP bought Applebee's in a roughly $2 billion leveraged
buyout in 2007, before global credit markets froze and consumer
Its debt load has investors nervous since it limits the
company's financial flexibility in a very challenging operating
market. It also can cause big swings in the company's results.
The company said it complied with its debt covenants in
2008 and will continue to do so in 2009. DineEquity, which paid
down about $500 million in debt in 2008, will "dedicate a
portion of excess cash towards opportunistic debt retirement"
in 2009, Chief Executive Julia Stewart said.
Stewart also said DineEquity believes it will meet its goal
to sell 200 company-owned Applebee's restaurants to franchisees
and is working with "several interested parties to overcome
obstacles posed by the credit markets and weakness in the
While it has made progress paying down debt and finding
buyers for Applebee's restaurants, DineEquity has significant
challenges ahead, said Telsey Advisory Group analyst Tom Forte.
"On one hand they deserve a lot of credit, on the other,
they still have an uphill climb," he said.
SHORT SELLERS BET ON STUMBLE
Short-sellers, who hold nearly a quarter of the company's
freely trading shares, had bet that DineEquity would stumble
and that its stock would fall. The company's
better-than-expected results on Wednesday forced those
investors to purchase stock to cover their bets -- amplifying
the share rise.
"The shorts were betting that the company was going to have
serious financial and covenant issues. Those concerns are
fading quickly," said Raymond James analyst Bryan Elliott, who
has a "buy" rating on the shares.
DineEquity, based in Glendale, California, said its
fourth-quarter net loss rose to $136.9 million, or $8.15 per
share, from a loss of $16 million, or 94 cents per share, a
Excluding charges related to write-downs of Applebee's
goodwill and assets, the company's profit was 34 cents a share,
compared with the 6 cent loss that analysts polled by Reuters
Estimates had expected.
Total revenue rose 66 percent to $355.5 million due to the
addition of sales from Applebee's, which is now offering two
dinners for $20.
Same-store sales at IHOP restaurants fell 1 percent, while
Applebee's systemwide domestic same-store sales fell 4.6
percent. IHOP is primarily known for its pancakes and other
Raymond James' Elliott said the company did a better job of
controlling costs than he expected. It also beat his same-store
sales estimates, which called for a drop of 6 percent at
Applebee's and a 2 percent fall at IHOP.
J.P. Morgan analyst Steven Rees said in a client note that
the company missed his same-store sales targets that called for
a 3 percent decline at Applebee's and flat results at IHOP.
Still, Rees noted that Applebee's restaurant margins
improved in the fourth quarter, helped by labor scheduling
changes and food cost management.
DineEquity said it expects 2009 same-store sales at IHOP
restaurants to range between 1 percent lower and 1 percent
higher, and those at Applebee's to be down between 2 percent
and 5 percent. [ID:nWNAB6626]
Fiscal 2009 "sales and margin guidance at Applebee's looks
aggressive given current sales trends," Rees said.
DineEquity shares climbed 43 percent to $8.44 in early
Tuesday trading, but later pared those gains to be up 16
percent to $6.86 in late afternoon trading. The shares hit a
52-week high of $53.32 on May 20 last year.
(Reporting by Lisa Baertlein and Shivani Singh in Bangalore;
Editing by Dave Zimmerman and Tim Dobbyn)